New draft legislation aims to tackle APP fraud

UK banks are to be allowed to delay payments by up to four business days should they suspect fraudulent activity, as part of a government amendment to the Payment Services Regulations 2017.

The government has published draft legislation to allow payment service providers, such as banks, to delay outbound payments processing when there are “reasonable grounds to suspect fraud or dishonesty”, giving them more time to contact the customer or relevant third parties.

Those grounds will have to established by no later than the end of the next business day following receipt of the payment order, the government has said.

The new legislation is being introduced “as a priority” in an effort to tackle Authorised Push Payment (APP) fraud in the UK, which has increased in both value and volume.

APP fraud is where a payer is deceived or defrauded into authorising a payment to a criminal.

The government intends to lay the draft legislation before Parliament in Summer 2024, with a view to the legislation coming into effect at the same time as the Payment Systems Regulator’s (PSR’s) rules on mandatory reimbursement for APP fraud, on 7 October.

In May last year, the government published its fraud strategy in which it committed to investigating how legislation might need to change to allow PSPs further time to assess potentially fraudulent payments to help tackle APP fraud.

Under the draft legislation, PSPs are allowed to delay the execution of an outbound payment transaction by up to four business days from the time the order is received, which is not permitted in legislation currently.

PSPs will be required to inform customers of any delays, as well as the reasons behind their decision, and what information or actions are needed to help the PSP decide whether to execute the payment.

On LinkedIn, the PSR said: “We welcome the government’s draft legislation allowing financial services firms more time to investigate potentially fraudulent payments.”

The legislation will only apply to payments conducted in the UK in sterling.

The PSR revealed the details of its new APP fraud reimbursement requirement in December last year, ahead of the scheme’s implementation in October this year.